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What our members have to say...
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"What a ride it has been - we had just launched and were looking for 6 figures for our marketing budget. We met with quite a few investors that we just didn't click with, and then one that understood our business perfectly. Within a week it was all signed, and our marketing kicks off in a few days. We went to two VC houses over and above Investment Network, and they weren't able to find the funding we wanted, so this is just another thumbs up for this amazing network."
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Riccardo S - Dealio |
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Avoiding Failure - Guy Rigby
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The recession has hit home recently as two of my friends’ businesses have gone under despite having healthy order books. In both cases, the final coup de grace was delivered by their respective banks, who withdrew further credit.
To a former salesperson, a company going into receivership despite having a good sales pipeline is a paradox, so for enlightenment I sought the advice of Guy Rigby, who heads up the entrepreneur group at accountants Smith & Williamson.
Rigby explains that there are at least ten reasons why companies fail. Good economic conditions can paper over the cracks in their businesses for a while, but when credit becomes tight the final symptom of their malaise is running out of cash. But this is the ‘sneeze’ rather than the ‘cold’; the underlying problems need to be addressed before they become terminal.
For companies that are turning over more than a million pounds, Smith & Williamson offer a free two-hour business ‘Road Test’. They review twenty key areas of the business and generate bespoke output to help them focus on key issues and challenges that lie ahead.
They first examine the strategy and business model; too often they find that companies are essentially pushing water uphill. They may be generating revenue from existing customers, but this may have declined over time, or even represent unprofitable business. Failure to take necessary action in good time is the hallmark of weak or ineffective management. It may be time to refresh the talent at the top, as is often seen at Premier League football clubs. While Smith & Williamson do not advocate changing entire management teams after a short series of poor results, they point out that complacency combined with an inability to act decisively under pressure are major factors in companies’ failure.
The whole organisation may need to be reviewed if the company is over-staffed and poorly managed. In the current climate people may be fearful for their jobs, and random discussion about this may reduce productivity even further. The solution is much more complex than just reducing the number of staff, even if they are visibly under-performing. Poorly thought-through reduction of staff numbers gives a very negative message to the best performers, and encourages them to look elsewhere, which compounds the problem.
Rigby stresses that the challenges in a company are not just internal. Some of your customers may be difficult and unprofitable; their business terms should be re-negotiated or even politely terminated if no agreement can be found. This process can be unpleasant, especially if you have to say goodbye to some long-standing clients, but it may be cathartic. It is common for companies who go through this process to see a dip in turnover for the next year but benefit from a significant increase in profits, as well as reaping other benefits from their more robust business model.
Another area of focus centres on the company’s suppliers, who may have become unreliable or unprofitable. Again, this may involve people and companies you have dealt with for years and involve some personal embarrassment for the founders of the company, but your relationship with your suppliers should always be based on good business sense, not sentiment.
Sadly, the Smith & Williamson ‘Road Test Your Business’ offer came too late for my friends. My advice for them is to take a long holiday to repair and renew their relationship with their families and then take President Obama’s advice to “pick yourself up, dust yourself off and start all over again”.
They should contact their immediate network of people, especially those with whom they have a high level of trust and respect, and try and identify a business opportunity that can generate cash quickly. With any luck they will soon be knocking on the doors of a bank again, although this time older and hopefully wiser. When they do eventually bounce back, they might decide to look for a quite different type of bank for their new business. The incumbents in the banking market know they have to behave differently in the future, and some enterprising entrepreneurs I know are even thinking of starting their own.
They are sure they can find customers, and they tell me that the mechanics of a bank that only takes deposits and makes loans are fairly straightforward. Their only challenge is attracting the initial funding, so if you happen to have half a billion pounds lying about and want to help the UK’s best cash-generating entrepreneurs, please let me know.
Access to the Smith and Williamson toolkit and ‘Road Test Your Business’ can be found here: www.smith.williamson.co.uk/entrepreneurs/toolkit |
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